Friday, November 14, 2008

More on GM and bankruptcy

Jonathan Cohn's "Panic in Detroit" piece in the New Republic is a good explainer on why GM should be saved. Cohn tells why well-intentioned Chapter 11 reorganization could send the automaker into no-exit Chapter 7 liquidation. With reduced production costs from recent two-tier labor agreements, GM will save almost $3,000 per vehicle. But those savings won't materialize until 2010 -- which is why the company needs a bridge loan of $25 billion guaranteed by the U.S.

Global demand for new autos over the next decade is estimated to be about 180 million units. GM needs to be strong enough to keep its approximately 14.5% share of worldwide production, and possibly increase that number. If it can make a global success of its 40MPG Chevy Cruze mid-size sedan (due in 2011), it could increase -- actually recover -- share. Bankruptcy, however its "pre-packaged," will be a brake on that happening.

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